The difference between old style and new style student loans

posted by in Living with debt

student prospectuses

Where did you spend your student loan? (thanks to jennifercw)

If you’re like me, you went to university because that was what you’d always expected you’d do. There was no real thought for what you’d do at the end or how it would actually benefit you, let alone how much it would cost and the time it takes to repay.

Even now, years after leaving university, I’m still not quite sure how long it will take me to repay my student loan in full. But somehow it doesn’t matter that I don’t give it a second thought and don’t consider it to be an actual ‘debt’ as such.

The fact that it’s deducted at source and I don’t receive the money before it’s paid out helps to put it to the back of my mind and not worry about it like I might about other bills.

Nowadays students seem to be more aware of the costs involved, as rising fees and cuts being made to benefits such as EMA make the news headlines. And as more and more graduates are struggling to find employment, I’d probably think a lot longer and harder about going to university if I had to make the decision now.

Old style vs. new style student loans

So in honour of National Student Money Week and for those of you like me whose student days are long gone, we’ve outlined the basics around repaying student loans and split them into two: ‘old style’ and ‘new style’.

Firstly what might shock you the most is that whichever style you have, one thing that’s certain is that you can’t avoid repaying it if you earn above the threshold. Neither is included in any form of insolvency and so cannot be written off, no matter what your financial circumstances.

So whether you’re considering a Debt Relief Order (DRO), an Individual Voluntary Arrangement (IVA) or even bankruptcy there’s no way of avoiding the fact that it needs to be repaid!

Old: Students that started university between 1990 and 1997 will have this type of student loan.

New: Anyone who is currently studying and all students that started during or after 1998.

Old: The current interest rate is 4.4% and doesn’t take into consideration any repayments you might have made within the last year.

New: The interest rate tracks the Bank of England base rate plus 1%, so currently it’s 1.5%. It won’t ever exceed 4.4%.

Old: Last year’s interest rate was -0.4% (so loans will have reduced whether you made payments or not!).

New: Last year’s interest rate was 0% so the balance would have remained the same if you didn’t make any repayments.

Old: You only make repayments if you earn over £26,449. The outstanding amount is divided over 5 years, or 7 years if you took out more than five loans

New: Repayments start at 9% of everything you earn over £15,000

Old: You make repayments directly to the Student Loans Company

New: Payments are deducted by your employer at source through payroll. HM Revenue and Customs only send it on to the Student Loans Company once a year but interest is applied as though payments were made monthly.

If you’re self employed, you would need to do a self assessment at the end of the tax year and send the payments yourself.

If you have more than one job, and you’re under the threshold for both – even if just by a small amount – you wouldn’t have to make payments as they don’t consider the total income.

Old: The loan is not recorded on your credit file. However if you are late in making repayments, this will be recorded and will affect your credit rating.

New: It will never impact your credit file, although lenders may ask whether you have a student loan if you apply for credit. Your take home pay may also be taken into consideration which already accounts for your repayments.

Old: If you are earning less than £26,449, you have to write to the SLC to inform them of this and defer your repayments. If you don’t do this, they will chase you assuming you should be making payments.

New: You can’t defer payments as long as you’re earning above the threshold.

If you’re under 40, your loan will be wiped clear 25 years after your repayments were to start or when you reach 50 if this is sooner. If you’re aged over 40 it will be wiped when you reach 60.

If you took your loan out between 1998 and 2006, your loan will be wiped when you reach 65. If it was taken out after 2006, it will be wiped 25 years from the first April of graduation when you were first due to repay.

Have you got student debts? How long do you anticipate that it’ll take you to repay – longer or shorter that you expected? We’d love to hear your thoughts.

For more student loans advice visit the excellent Save the Student, and if you’re struggling with repaying your loans you can contact us for further advice through our online debt advice service.

Read our Student Debt Guide.

Pavan Gata-Aura is a qualified debt advisor with 6 years of experience. She enjoys spending time with her two children, fundraising for charities, has spent time volunteering in Africa and takes part in organised races.

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  • Chutchie

    I have an ‘Old Style Student Loan’. After University a friend became very ill and I became a carer in receipt of benefits. Eventually I became ill myself. Unfortunately I did not think about my student loan and didn’t inform the student loan company of various changes of address. Obviously I wasn’t earning and could not make any repayments. The student loan company contacted me in 2012. I was informed that even though I was not earning anywhere near the salary at which I should repay my loan(working a low-income job), I could not defer as I had not kept in contact with them. Since November 2012 I have been making monthly repayments (an agreed affordable sum). The interest accruing is frightening and causing much anxiety. I am 59 years old. My pensionable age is now 66. I am having to consider reducing the hours I work due to ill health and don’t know how I am going to manage…. I would be greatful for any advice/pointers. JM.

    • moneyaware

      Hi there,

      Thanks for your message and I’m sorry to hear about your situation. I can understand that this is stressful, but it’s important to remember that your student debt is not what we would call a priority debt. As such, we would recommend you look to cover all of your essential bills such as rent or mortgage, food and utilities, and then look at how you can deal with repaying the loan.

      The Student Loans Company have the same powers to recover money as any other non-priority creditor, so you can read a bit more about the options open to them to recover the debt here: http://moneyaware.co.uk/2011/08/you%E2%80%99re-in-debt-but-what-can-your-creditors-actually-do/

      If you’re struggling to make repayments to your student loan then I’d suggest you get in touch with us for advice. You can have a chat with one of our advisors about your situation in more detail, and we can recommend the best way for you to deal with the debt. The advice we give is free and impartial, and we offer a range of solutions which you can read about here: http://www.stepchange.org/Howwecanhelpyou.aspx

      You can find out more about how to get in touch with us on our website: http://www.stepchange.org/Contactus.aspx

      I hope this helps.

      Kind regards,

      Laura

  • Yvonne Barlow

    i have an old style loan which i have only just started to repay. however, i am going back to university in september to do a postgrad, i have applied for loans for my fees and cost of living. how will this work though when i start employment again. will i have to repay both loans at the same time if i hit the income threshold for the oldest loan which this year is approx £28000?

    • moneyaware

      Hi Yvonne,

      Thanks for your message.

      It’s likely that you’ll be repaying both loans at the same time, because the original ‘old style’ student loans were a different type of loan with separate rules on repayments and how they are dealt with.

      The threshold amounts for the different types of loan are also different, so again it’s likely that these will be applied separately.

      I hope this helps,

      Rory

  • Mamasquidge

    Im 45 and considering going to university for the first time studying as an undergrad. I currently work self employed so will study, in Wales, part-time. Will I still have to repay my loan when I start to draw my pension at 65?

  • Daniel Philip

    I am very annoyed at the moment. I took out a student loan for my university years which began in Sept 1998. Back then myself and friends were all under the assumption that we would not be starting repayments until we earned £20000 per year AND it was common knowledge that the debt would be written off after 25 years from graduation. It seems as though this understanding or agreement has been changed sometime around 2006 by the student loan company, who have quite conveniently removed all evidence of these earlier rules and agreements back in 1998 from their website and subsequently do not appear on any associated website to do with student loan information… It’s almost as though these earlier agreements from 1998 never existed and that the 2006 rules for a plan 1 repayment scheme until we are 65 apply to all of us who took out loans 8 years prior to these new rules coming into effect… 2 hrs ago I was content with the notion that I had just seven years of a 25 year debt left to pay, yet having sifted around the Internet I now realise that in 2006 the thieves changed the rules without informing us that WE will be paying this debt off until the age of 65… An additional 26 yrs on top of 18yrs already paid… Oh and you may think that 18yrs repayments is a great deal but unfortunately the student loan company seem to take mainly debt interest from us and barely chip into the actual debt itself… So it’s time for the real Brexit… Exit Britain, live abroad… Never tell the student loan company and never pay back the rest of the debt for pulling such a shit scam on everyone who went to uni in 1998… Sod them…

    • Nick

      Worked for me so far. That course was useless and I’m not going to pay for it.

    • Ajay

      I am in a similar situation, but would assume that the original contracts that we signed would override any changes they have made… did you check this out?

      • Dan OToole

        Having read some responses on here it is in fact true that the ‘write off’ rules stated on the SLC website are:

        England or Wales – Before 1st September 2012
        It will be cancelled if you:- took out your first student loan in or before academic year 2005/06, then it will be cancelled when you turn 65.

        post 2006 the debt is wriiten off after 25 years..

        HOWEVER..

        The student Loans Company have in fact changed the rules. My loan was taken out in 1998 and back then there was a generic understanding from ALL who had student Loans that they would be written off after 25 years… There was none of this paying until you are 65 craziness… I think that trying to dispute this will lean a person nowhere. It would be like trying to argue a point with government, i.e. once the government’s mind is made up it becomes policy and to hell with you.

  • elaine wood

    Keeping this as brief as possible. I got my student loan in 1999 when I went from NI to Birmingham uni. I recieved just over 7200 in 6 installments until I left just before completing my 2nd yr (2001). Started repaying my loan in 2002 when I hit their threshold (well below 20000). Moved from England back to NI in 2004. As payments came out of wages automatic I never thought about statements as they just kept taking at source it didn’t affect me.
    Then in 2014! I randomly have a statement arrive to my home address (which they had from me starting in 1999) saying I currently owe 8550!!! I rang immediately and they did send me copy of statements and apart from 2 yrs very little paid whilst on maternity I paid on average 800 a year (for 14 years). The two yrs whilst on maternity by the way had far more interest added the money paid off.
    THEN on closer inspection I noticed they supposedly gave me £3812 in 2004!!! Complete nonsense obviously. Why would they give this to me in one lump sum 3 years after dropping out of uni?!?! I’ve since given them proof that the natwest bank closed down my bank account in 2003 due to inactivity and therefore I could not have had this money. To absolutely no avail. Bank says they can do no more than give me a written letter and the student loan company said they didn’t get money back therefore I must continue payments. Disgraceful!! Considering I have well overpaid as it is and it’s still more than the original amount left to pay 14 yrs down the line. Furthermore as daniel said the terms of original loans all changed so there seems to be no end to payments. I sit with a manager daily who earns a great deal more than me and went to uni for 3 years took the full loans and paid back zero. Why? I was quickly picked up using my national insurance number and payments commenced in this job why not him? He started a few years before me and been in the same job. How can they steal extra of some people and not bother even claiming back what they’re owed of others?? I have been battling back and forth with the slc since Sept 2014 and have got nowhere and citizens advice haven’t either.

    • moneyaware

      Hi Elaine,

      I’m sorry to hear about this situation. It sounds very frustrating to deal with.

      Our expertise is in helping people deal with their debts, rather than disputing them. Due to this
      we’d be unable to offer more specific advice about what you could do. We do have a page on disputing debts with
      creditors on our website, that you may find useful to read:

      https://www.stepchange.org/debt-info/your-rights/disputing-debts-with-creditors.aspx

      If you have the proof that you didn’t receive the extra money, it might be worth filing a formal complaint and then
      escalating it to the relevant ombudsman if it doesn’t get resolved.

      I hope this helps,

      Jen

  • Nick

    So I took out a loan in 1999. I didn’t end up finishing that course (due to it’s incredible poor quality). I moved overseas in 2004 and I’m not really planning on going back to stay any time soon. Will this loan just sit there until I’m 65?

  • Yasmin

    I took out loans during 2004-2007. Does that mean my loans won’t be written off until I am 65?!?!

    • moneyaware

      Hello Yasmin

      Thanks for your question, the ‘write off’ rules states on the SLC website are:

      England or Wales – Before 1st September 2012
      It will be cancelled if you:

      – took out your first student loan in or before academic year 2005/06, then it will be cancelled when you turn 65; or
      – took out your first student loan in or after academic year 2006/07, then it will be cancelled 25 years after you became eligible to repay

      Thanks
      Becca

  • Ajay

    Hi I took out loans When I studied in England from 1995 to 1998. I understood at the time that if I didn’t pay them off within 25 years (or by 50 or 55 years of age) they would be cancelled. I am sure that this was in the fine print which I read at the time, but has faded on the paperwork I still have so its hard to check. The information on the SLC website (although Honours Student Loans administer my loan now) and here say that I have to wait till I’m 65. So have the terms and conditions changed or is it possible that is was different again in the time period I am talking about?
    There is also a Guardian article that specifies that loans taken out from 1990 to 1998 are cancelled after 25 years.
    https://www.theguardian.com/money/2014/may/20/student-loan-erudio-under-fire
    How would I check this with Honors.
    Thanks

    • Ajay

      Reading Daniel Philips post below it seems they changed the rules… can they do this, surely our original contracts are a legal document that cannot be overidden just because they decide to?

    • moneyaware

      Hi Ajay

      Thanks for your comment.

      Without seeing your agreement we cannot advise on individual cases. To ensure you have the right details we’d recommend that you contact your student loans provider and check the dates with them.

      However, the general guidelines are:

      Pre-1998 loans

      The remaining balance owing to a mortgage-style will be written off in the following circumstances, depending on the age of the client when they took out the last annual loan instalment:

      Client under 40 when last instalment borrowed – balance written off after 25 years or when the client turns 50

      Client over 40 when last instalment borrowed – balance written off when the client turns 60.

      The balance will not be written off if there are any arrears or if the client has failed to defer the repayments on time.

      The client can also apply at any age to have the loan balance written off if they become permanently unable to work and are claiming a disability-related benefit. The client should write to SLC with evidence.

      Post 1998 loans

      All loans taken out in the UK and Northern Ireland after 1 September 2012 will have any remaining balance written off 30 years after the first repayment was due.

      Any balance left to pay on an income-contingent loan taken out before 1 September 2012 will be written off in the following circumstances:

      England, Wales & Northern Ireland – Loans taken out before the 1 September 2006 end when the client reaches 65. Loans taken out after the 1 September 2006 end 25 years after the first repayment was due.

      Scotland – Loans taken out before the 1 September 2007 end when the client reaches 65. Loans taken out after the 1 September 2007 end 35 years after the first repayment was due.

      I hope this clarifies this for you.

      Thank you
      Becca

  • Ian Gilson

    I’m in dispute with SL & Erudio over them claiming I fell out of deferment on 1 of my 3 loans; meaning the account now has arrears & will not be written off should I hit the 25 year clause.

    This came about (apparently) from a loss of a postal deferment form return & when I challenged why we were sending paper back & forth in the email age was told

    “You can submit all deferment applications by email but it has to be requested; we don’t publicize it”

    WTH?! The conspiracy theorist in me would suggest the process is being complicated to cause defaults.

  • Paul McNamara

    can anyone help me with my one? i turn 50 next May. i took student loans out from 1990-94 (with 3rd year in industry). i graduated at 24 but then joined the army for the next 6 years. now back in civvy street, this year is the first year i will have earned over the full threshold repayment level for the whole year (just wish i could have waited a year!! ;-). now but for all but one of the years since i managed to fill the forms in time to defer the loans. but one year i was late doing so (when i was stationed abroad). and this one year i had to pay some deferment payments i seem to recall. now my question is this: will this one year of late deferment allow them to persue me for the balance of the loan despite me hitting the big 50?

    thanks guys

    • moneyaware

      Hi Paul,

      I don’t think the mix-up your deferment forms would have any impact on the date you’ll no longer be liable for your student loan. Even if you’d been paying the loan for years, if there was money left over when it stops being owed you wouldn’t have to pay.

      There’s an article on MoneySavingExpert.com about the age that you no longer need to pay student loans. Here’s the link: http://blog.moneysavingexpert.com/2017/05/02/will-student-loan-written-off/.

      For pre-1997 student loans it says that they stop being payable at the earlier of when you are 50-years old or 25 years after your first payment on the loan agreement.

      Congratulations for your fiftieth birthday next year.

      Kind regards

      James

      • Paul McNamara

        that’s great James. thanks for clarifying the situation. i turn 50 next May. and the forms for this year will be arriving any day now (based on previous years). and for the first time, i will be earning over the £27,000 threshold level. but as it’s only for 8 months paying the loan back, i won’t mind so much.

        thanks
        Paul